Understanding basic financial management skills are vital in maintaining a sustainable business, whether big or small – profit or not-for-profit. These skills can (and should) be applied to personal finance. Whether you know it or not, you are actually performing budgeting and financial management techniques every month – they just aren’t as detailed and uploaded in a financial managment system and monitored/reviewed by several department levels like business income and expenses are. These techniques include income statements, balance sheets, and cashflow statement.
Here are some other skills that are utlized in the workplace that can be used in your own personal finance and budgeting:
- Monthly Budgets – All organizations (both for profit and non-profit) use budgets in most departments to regulate expenditures and ensure they are operating within their set budget. Budgeting is also necessary to ensure a healthy and sustainable business cashflow. Companies are also able to see where money is coming from and how it is spent by utilizing a detailed cashflow statement.
- Multiple Streams of Revenue – Companies utilize a profit and loss statement (i.e., an income statement) to monitor all streams of revenue. Companies with longevity often find ways to have more than one stream of income. They are able to monitor money received (or to be received/collected) and compare it to the expenses paid (or to be paid). Having multiple streams of income ensure company sustainability.
- Monitor Expenses – Companies utilize the income statement to review expenses on a monthly basis. Expenses are reviewed and approved before money is spent. Meetings are held to discuss ways to reduce expenses and/or seek early payment discounts.
- Buying Assets – Companies are often finding opportunties to purchase assets and/or capitalize on the sell of assets, if needed. Additionally, the more assets a company has, the more collateral/leverage they have when conducting other business deals. Thus, the more collateral/leverage, the greater the opportunities there are to get bank loans, purchase more assets, and acquire subsidiaries, if desired.
- Seek Tax Breaks – Companies often seek outside advice to maximize all available tax breaks possible. These tax breaks include, charitable contributions, interest/dividend income, philanthropy, corporate social responsibilities, volunteering, and donating.
These financial management skills can be applied to your personal finance and monthly budgeting. Creating and monitoring your own personal budget will help you keep track of your spending and help you save more money. Budgeting also helps you monitor your expenses more closely and find ways to make your spending work to your benefit (i.e., paying bills with a credit card that offers cash back). Multiple streams of income consist of finding a second job or evern buying assets, such as rental property. Seeking tax breaks consist of chartible contribution, donating to non-profits (i.e., churches or cancer foundations), opening a small business, or purchasing real estate.